Score-driven models provide a general framework for modeling time-varying parameters.
Time-varying parameters can be volatilities, correlations, default probabilities, loss-given-default,
rating transition intensities, the speed at which a central bank buys assets, macro or term structure factors, etc.
A brief review of the key idea is here.
Code is available from the www.gasmodel.com website.
Dynamic dependence models
CLSZ (2020, JME) use a high-dimensional model for dependent defaults among many counterparties.
The statistical model is an extension of CKL (2011, JBES), whose code is here.
Clustering high-dimensional panel data
LSS (2019, JBES) group a three-dimensional array of accounting data into different bank business model groups.
Code illustrating the approach is here.
CLSS (2022, JE) allow for transitions across groups and for heterogeneous adjustment parameters.
Code is here.
CSLS (2023, JFEctis) suggest a straightforward non-parametric approach.
Code (python) is on github here.
Time-varying extreme tail parameters
DLSZ (2023, JBES) study time-variation in the extreme tail of stock returns and sovereign yield changes.
Example code (Ox) is here.
Linear state space model
CS (2023, EER) use an unobserved components model to decompose sovereign yields into latent yield components.
Example code and time-varying risk premium estimates are here.
Mixed-measurement dynamic factor models
Reseachers are sometimes interested in studying the joint variation across panel data observations for which different families of
conditional distributions are appropriate. For example, CSKL (2014, REStat) consider the joint modeling of firm rating and default
transitions (dynamic logit), macro-financial observations (normal), and loss-given-defaults (beta distribution). In bad times, defaults
and downgrades are systematically up, macros are down, and losses-given-default are high.
Ox code for the CSKL observation-driven mixed-measurement dynamic factor model is here.
KLS (2012, JBES) introduce parameter-driven mixed-measurement dynamic factor models.
SKL (2014, IJF) and SKL (2017, JAE) extend this. This Ox code refers to SKL (2017, JAE).
Non-Gaussian credit risk models in state space form
Credit risk conditions can vary substantially over time, up to an order of magnitude.
Standard portfolio credit risk and stress testing models relate the variation in pd's to ratings and easily-observed macro-financial
time series data. Unfortunately, they can fit and forecast badly, particularly in times of stress when they are needed most.
The addition of a latent factor is a practical way to capture the previously-documented excess clustering in non-Gaussian data.
This code replicates the simulation results in KLS (2011, JE).